GSA scandal sheds light on small business contracting fraud

Buried in the laundry list of misconduct claims against the General Services Administration is further evidence of what at least one federal official and one trade group call a critical problem for small employers: improper contracting that diverts government spending to large corporations instead of small businesses.

GSA Administrator Martha N. Johnson resigned Monday and two of her senior deputies have been fired in the wake of the agency’s spending scandal.

The GSA inspector general’s report, which blasts the agency for excessive spending on clowns, mind readers and lavish parties during a training conference just outside Las Vegas, claims that officials awarded a $58,808 contract to a large audio and visual services firm, Royal Productions, when federal regulations require contracts of such size be reserved for small businesses.

The inspector general also said the agency violated federal rules by neglecting to publish a solicitation for the contract on the government’s list of Federal Business Opportunities and by providing Royal Productions with a competing bidder’s quote — thus allowing the company to present a winning offer. Subsequently, the agency paid roughly double what the contract outlined for the company’s employees’ hotel rooms, according to the report.

Although the scandal alleges a wide range of misconduct, the contracting accusations shed light on a problem that some say has been crippling the nation’s small businesses for more than a decade.

“The diversion of small-business contracts to large corporations has gone on for a dozen years, and the only thing the government has done in response is remove the transparency,” Lloyd Chapman, president of the American Small Business League, said in an interview, later adding that the procurement review system available to the public has become increasingly difficult to use in recent years.

The federal government has a stated goal of awarding 23 percent of contract dollars every year to small businesses. However, Chapman pointed to his group’s recent analysis of government data that showed that 72 of the 100 companies receiving the highest amount of federal small-business contracts in 2011 were firms that exceeded the Small Business Administration’s size standards for small companies.

“Anytime you take a sample of what the federal government is doing and anytime you take a look at small-business contracting in almost any federal agency, what you find is money going to the biggest companies in the world,” he said.

In October, the SBA’s inspector general published a report acknowledging that small-business contracting was the agency’s most serious management and performance challenge. Specifically, the report stated that “procurement flaws allow large firms to obtain small business awards and agencies to count contracts performed by large firms towards their small business goals.”

But the SBA says the Obama administration has taken steps to bring more contracting opportunities to small businesses, noting that the president created an interagency task force charged with increasing their share of government work and signed the Small Business Jobs Act, which agency officials say levels the playing field for small companies competing for federal contracts.

“These initiatives have made a real difference,” SBA Deputy Administrator Marie Johns wrote on the agency’s blog. “The number of contracts going to small businesses has steadily risen in the last two years,” she wrote, noting that the government nearly hit its 23 percent small-business contracting goal last year.

When Congress returns from recess in two weeks, the public-buildings subpanel of the House Transportation and Infrastructure Committee plans to conduct a full hearing on the claims of wasteful spending against the GSA, according to the committee’s chairman, Rep. John L. Mica (R-Fla.), who said “the Las Vegas fiasco is just the tip of the iceberg.”

J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he runs the On Small Business blog.